Innovation – Turning Ideas into Profit
By John Beacham, CBE,PhD,DSc,FRSC

This short article is designed to help businesses who are keen to thrive and grow in a climate of change and growing competition. It is relevant to any size or type of business. It focuses on the key business process of innovation, the successful exploitation of new ideas. Innovation used properly should improve business surviveability and lead to increased profits.

Contents:

1. Business Growth and Innovation

2. The New Skills for Success

3. The Exploitation Process

4. Leadership and an Innovative Organisation

1. Business Growth and Innovation

The Business climate today is constantly changing and evolving. Often what was satisfactory yesterday is either no longer wanted or has been superseded by something better. These changes are being driven by the process of globalisation, which in turn is being caused by the increasing speed and ease of communication and the availability of information through the internet. These changes are both a threat and an opportunity.

Every business and every product or service is open to competition. This competition can now come from anywhere in the world and it is not always easy to recognise until it is significant. Although size and global coverage make some companies powerful; flexibility, innovativeness and speed to market are still winning strategies. Charles Darwin said “the species that survived were not the most intelligent – they were the most adaptable to change”.

Business Growth, through adaptability and creativity, is a good way to counter the effects of change and competition. In a recessionary change, such as now, business failures increase. Experience shows the main causes to be, in order of importance, loss of markets, lack of finance, bad debts and management shortcomings. A business that is not growing through new or improved product and service introduction is likely to be more vulnerable.

To cope with change and competition a business needs a clear view (Vision) of what it is trying to achieve and how it is seeking to do this (Strategy). Gary Hamel believes that “the only thing that matters about a strategy is how different it is from others”. However Vision and Strategy have no real value unless they are combined with the full understanding and commitment of all those involved, to deliver them.

Business growth can be internal and organic or it can be by acquisition. There is a lot of evidence from the market place that as many as two thirds of acquisitions result in loss of value through overpayment, poor merging or assimilation of different business cultures and loss of management focus. In addition if external finance is used the debt burden can be difficult to manage. The simple view is that there are no easy ways to grow and that internal growth, financed internally, is the most controllable and the least risky.

The old model for business success, of mastery of capital and labour, is no longer enough, Successful companies also show great proficiency in the new skills of:-

- Understanding market/customer needs through customer intimacy.
- Accessing knowledge/skills and ideas through networking
- Innovating by turning ideas and creativity into new business.

Innovation is “the successful exploitation of new ideas”. For new products and services, success means that they are purchased in significant amounts. However, innovation can also be applied to the Company’s business model and business processes and operations. For example innovation can be applied to reducing costs and overheads, thereby making more finance available for investment in growth. It can also be applied to harnessing the innate creativity of all staff and developing an organisation where innovation and creativity become applied to everyday activities. The evidence shows that businesses who focus on innovation deliver above average sales growth and profitability. These businesses typically operate with targets such as 30% or more of sales from new product/service introductions made in the last 3-5 years.

2. The New Skills for Success

Innovation is often seen as a technical activity, but ultimate success is only measured by acceptance in the market place. A potential new product or service must have a customer perceived value, measured as price, significantly in excess of the costs of providing it, since there will inevitably be unexpected additional costs of provision and price erosion through competition.

Customers or consumers are seldom able to consciously express their latest needs, although they will usually recognise the solution when shown it. Listening to customers is, therefore, not sufficient to understand what they might want. Customers and market immersion involves closely observing what they do with current offerings, and creatively identifying what is either missing, not satisfactory or could be improved. There is considerable evidence that in depth immersion leads to intuition and ideas, which can be turned into the foundations of innovation. It is critical to test any promising idea by turning it into a prototype that can be looked at, played with and commented upon by the potential customer, as soon as it is practicable.

Access to knowledge and skills is important to the creation, evaluation and development of new ideas. Business networks, whether local, sector or technology based are excellent sources of ideas, knowledge, support and encouragement and possible collaborators or partners. A University may be used as a source of tacit knowledge (consultancy), a gateway to leading edge explicit knowledge or a place to generate new required knowledge (collaborative research). The best and most productive interactions are built up over time, with trust and respect for each other’s needs. Other useful and valued interactions that lead to good quality knowledge transfer are placements, recruitment and licensing or spin-outs of intellectual property.

Knowledge transfer is mainly a tacit (person to person) process. Tacit knowledge offers potential competitive advantage since it is not normally available to others and is tailored to the interacting parties. It has been shown that three quarters of the most important contributions of academic research to technology development are tacit.

Most businesses innovate without necessarily realising that they are doing it. A planned approach to innovation depends on their strategic purpose and direction, their capability, their market understanding and the amount of finance available. For new products, innovation can be categorised into six types in ascending order of expense. The first three can be said to be subject to market pull and the latter three as technology push.

Incremental - Continuous product, process and service improvement.
New design - Using design and customisation to add value.
New business model - Embedding the product inside a service.
Increasing functionality - e.g. Adding software technology
Applying technology - Fusing different existing technologies to add value.
Break through - Exploring new technology

Research and Development is often an important part of innovation, and there is a well-established correlation between R&D investment and sales growth and market value. R&D can provide technology, knowledge and expertise, but this can also be obtained from elsewhere. An important pre-requisite is to have the necessary skill to recognise, translate and apply the knowledge wherever it comes from. It is often said that “Research is the transformation of money into knowledge, whilst innovation is the transformation of knowledge into money”.

3. The Exploitation Process

The process may be described as a linear set of four sub processes or stages, namely idea capture, evaluation, development and value realisation. In practice many activities often take place together, or in a different order, and may require recycling. In general, the front end of the process is more chaotic and the back end more defined. Value is added to the potential new product or service as each stage is completed. Necessary investment increases significantly at each new stage, and therefore it is important to clearly decide on progress or abandonment at the end of each one. Ideally a business should always have a living pipeline of innovation projects with some redundancy, so that a project that fails to meet the desired criteria can quickly be replaced by another that potentially does. It is also important to prevent pipeline constipation, by taking decisions as early as possible.

Good and prolific idea generation is essential to create a healthy pipeline and is often a much-neglected area. Albert Einstein said “Imagination is more important than knowledge”. A new idea that is proved by example is an invention, and may be protected by filing as a patent. A patent is the granting of a legal monopoly position in return for full disclosure. Alternatively, it may be better to keep the invention secret, if policing the monopoly would be difficult . A patent is the right to prevent unauthorised use of an invention within a particular territory for a limited time. To qualify for a patent, the invention must be novel, not obvious and not publicly disclosed anywhere in the world.

When a project reaches the Development stage, it should be managed formally by a project manager, against a project plan that extends to value realisation or market entry, to ensure that it successfully meets its technical, time and cost expectations. Value realisation can be achieved by a direct offering to the market. However there are a number of other ways to realise value such as, the sale or licensing of the project at an appropriate stage, the spin off to a new independent organisation (Newco), or partnership with an organisation bringing a missing piece of the exploitation strategy (e.g. finance, market position, technology, etc.) These latter strategies can help to reduce the risks, but also commensurately lower the potential reward.

4. Leadership and an Innovative Organisation

The creation of an innovative organisation, that is one where creativity and innovation are embedded from top to bottom, requires vision and ambition, attention to the culture and values of the business and, above all, leadership. An innovative organisation will be connecting with customers and markets, and inspiring all its staff to create and develop new ideas.

Top leadership must develop and communicate a clear and simple vision of the future and the strategy for achieving it and encourage and develop the relevant behaviours that will help bring it about. To make this change the message needs to be consistent and relate to “what’s in it for me”. An organisation capable of successfully harvesting its peoples’ potential and their ideas can be thought of as an “Unlimited Company” with a culture where “ordinary people can achieve extraordinary things”. An organisation that provides innovation as a key output must couple creativity, calculated risk, and entrepreneurial spirit with business and project delivery disciplines. An innovative organisation is, therefore always a subtle and shifting balance between the two different cultures of creativity/freedom (inspiration) and control/delivery (perspiration). This balance is the art of innovation leadership..

Innovation leaders are change agents. They must create an entrepreneurial climate, be catalytic in creating new ideas and support and protect those who take risks to be innovative. The more power is concentrated, the less easy it will be for the organisation to be creative and to adapt to external changes. Therefore empowerment or the distribution of power within the organisation is an important way to increase its adaptability to external change and encourage it to be entrepreneurial. People cannot, however, be given empowerment instead they must be encouraged to actively take it. They will usually take it when they accept the goals and recognise that both freedom and support are available. “People cannot discover new oceans until they have the courage to lose sight of the shore”. Empowerment engenders personal leadership. This personal leadership is about understanding oneself and hence others, controlling and using emotions constructively, building relationships and communicating, and lastly adopting an entrepreneurial mindset. This mindset is characterised by the recognition that change creates opportunity and that innovation is a way of life. It also includes the acceptance of risk and the belief that failure is not an option.

Inspirational leaders are visionary, ambitious, committed, demanding, confident and courageous. They are also lateral thinkers, rule benders, risk takers, and customer obsessed. They lead by listening, involving, trusting and caring about others. They also try to ensure that as many as possible of the four key motivators namely, achievement and success, personal development, recognition by their peers and reward are satisfied. Experience shows that reward is always the least important.

(17.05.09)

Biography - Dr John Beacham CBE,DSc,FRSC
John’s career spans 35 years in the Chemical and Pharmaceutical industry, where his last post was Research Manager for ICI plc. He was awarded a CBE in the 2000 New Years Honour list “for services to the Chemical Industry”. Since then he has been an Industrial Advisor to the DTI (9 years), run his own consulting business on innovation and a non Executive Director of a number of companies including LGC, an Analytical Services company. He has worked with academia, is a Fellow and Honorary Professor of Liverpool John Moores University and was awarded an honorary DSc. in 2004 by the new University of Manchester.
He is currently Chairman of Cogent, the Sector Skills Council for the Chemical, Pharmaceutical, Nuclear and Oil and Gas Industry and a director of CLIK, the STFC exploitation company and also “TrusTech”, the NHS NW exploitation company.
He has worldwide experience of New Products, Innovation, Networking and Business Higher Education partnerships and appropriate business strategies.